LICENSING EXECUTIVES SOCIETY

Britain and Ireland

NEWS EXCHANGE
Issue 65: Jan-Feb 1999

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The Society is joining forces with The Centre for International Business, University of Leeds (CIBUL), to stage a one-day course on the successful commercialisation of companies’ patents, trade marks and know-how. This is to be held at the University of Leeds on 26 March.

LES Vice-President Trevor Hunter and Adam Cross of Leeds University Business School are co-operating on this joint venture, which is designed to provide participants with a thorough introduction to all the key factors to be taken into account when protecting, exploiting and licensing intellectual property.

The initiative follows the Society’s success in establishing licensing as a recognised topic in tertiary education. Twenty students took part in a LES sponsored ten-week MBA elective at Leeds and are understood to have given the course the highest rating of all elective modules. The university is considering making it a core topic in the MBA.

Following this, Trevor Hunter and Education committee chair Kurt Deutsch met Adam Cross and university colleagues to discuss the possibility of running short courses for small to medium enterprises.

Talks on this topic are now also under way with representatives of the University of Coventry.

Registration will be at 09.00hrs. The seminar will start at 09.20hrs and will be followed by a buffet lunch.

Speakers from a variety of healthcare backgrounds will deal with the valuation of start-up companies, including pharmaceutical and biotechnology, a subject of great interest to both industry and technology transfer offices.

Sharon Finch from Medius Associates will describe the due diligence required in the valuation of healthcare technologies, and participants will then proceed to consider valuation of healthcare and pharmaceutical products and technologies.

President’s Diary

The year ended well with very satisfactory reports on the Society’s first major licensing course, for which thanks and congratulations are due to Michael Connor and his colleagues. The success of this event bodes well for another one-day business course, to be organised this time by Education committee members Trevor Hunter and Kurt Deutsch in co-operation with Adam Cross of the Centre for International Business at the University of Leeds. It is good to see liaison between the Society and the academic sector bearing such excellent early results.

As reported in this issue, LES Britain and Ireland was well represented at the LES International delegates meeting at Miami Beach, Florida. This was an ideal location but pressure of business left not nearly enough time to enjoy the sights and dip toes in the sand. Much was accomplished, and I was particularly pleased to welcome and do some networking with members of the brand new society of Arab Countries. Many due thanks were given to Renate Siebrasse, who has worked hard as LES International secretary for the last three years, and who has now taken over as co-ordinator of the LESI Annual Reports committee and vice-chair of the Publications committee.

It is early days but perhaps not too soon to begin dreaming of networking in a gondola. The Pan European conference will be in Venice on 22-25 September and this will be held, I understand, in magnificent surroundings on an island in a lagoon of the Grand Canal. The chosen theme is ‘Business and licensing, a challenge for European companies in a changing world’. I cannot provide further details just now, but I do know that the impressive list of international speakers prepared by host LES Italy will include several members of LES Britain and Ireland.

Back home again, the next big event is of course the Society’s Annual January Lunch at the Café Royal. If you have not yet made reservations for yourself and your colleagues, then the time to do so is now. We are meeting at noon for 12.30, and I very much look forward to seeing you there.

People

European links

Linklaters and four members of the former Alliance of European Lawyers – De Bandt van Hecke & Lagae (Belgium), Dr Brauw Blackstone Westbroek (the Netherlands), Lagerlöf & Leman (Sweden) and Oppenhoff & Rädler (Germany) - have joined forces in a new integrated international law practice under the name Linklaters & Alliance. LES Council member and former President Jeremy Brown of Linklaters and Willem Hoyng of De Brauw are the first co-heads of the intellectual property group.

Healthcare job change

Christi Mitchell, chair of the LES Britain and Ireland Healthcare committee and co-chair of the Healthcare Products special interest group of LES International, has recently changed jobs. She is now with Highbury Consultants of Hitchin, a concern working with companies, universities and individuals to help facilitate the biotechnology and healthcare product technology transfer process. Christi works also alongside Sharon Finch, chair of the Pharmaceutical Licensing Group (PLG), as one of a wide range of highly experienced associates engaged by Medius Associates, an independent consultant company serving the pharmaceutical and healthcare sectors.

Happy return

Barry Quest, Mark Goodwin and fellow partners and staff of Wilson Gunn M’Caw celebrated three major events for the firm with a champagne reception in Manchester town hall recently. Glasses were raised to news of the refurbishment of the Royal Exchange offices devastated by the Manchester bombing. The reception was also to mark the firm’s association with trade mark attorneys Elwyn R. Roberts & Co and the acquisition of Birmingham-based patent and trade mark attorneys H.N. & W.S. Skerrett.

On the move

After eight years as IP manager at Allied Colloids (Ciba Specialty Chemicals), Vice-President Trevor Hunter is now working as an independent consultant.

Government White Paper

Opportunities for LES in a competitive future?

The Government White Paper on Competitiveness was published, as Mandelson’s swan song, shortly before Christmas. The way forward is said to depend on transfer of technology and know how, and secural of IP rights.

   There is no acknowledgement of the important part already played in this by licensing executives or other IP professionals, and the paper has not been received without some criticism for its dismissive attitude towards current British Industry, and the naivety of some of its recommendations.

However, this is the first comprehensive official recognition of the essential significance of LES‘s sphere of activity and as such is to be warmly welcomed.

The paper starts from the premise that, as a country we can no longer seek to compete on the basis of cheap labour rates and tangible national resources. Instead we must focus on the ‘knowledge’ content of business activities. In line with this, proposals include:

• assistance in commercialisation of academic research through technology transfer and collaboration; improved availability of technology transfer information and expertise;

• facilitation of e-commerce and use of ‘information and communication technology’ (ICT);

• changes in accounting procedures to allow for intellectual asset valuation, and

• an ambitious IPR action plan to match development in rights with technological advance.

LES is already much involved in these matters. However, members will now perceive opportunities to raise the profile of the Society by channelling its efforts to accord closely with the Government initiative and to bring this to the attention of the various bodies and agencies featured in the document.

‘Our Competitive Future: Building the Knowledge Driven Economy’ Cm 4176. (www.dti.gov.uk/comp/competitive)

Reports from the regions

NORTH WEST

The first meeting of the new programme of events in the North West region was a resounding success, Mark Goodwin reports.

Jonathan Davey of Addleshaw Booth was clearly well versed in his subject and gave an excellent précis of the provisions of the New Competition Act in front of a packed audience at the 39 Steps restaurant in Manchester.

Interest in the topic had been high before the meeting, and Mark as regional chair had taken several calls from London-based members regarding a possible repeat of the meeting down there.

As always with LES North West events, the atmosphere was cordial and new faces at the meeting were made welcome.

WEST MIDLANDS

Barry Quest, has now taken on the challenge of raising LES activity in the West Midlands. Together with Michael Croft, he has already made contact with many existing and potential local members, and much interest has been shown.

An inaugural meeting has been proposed for the new year, possibly on the Competitiveness White Paper. Depending on the level of sustainable interest, the decision will be made whether to combine with the East Midlands or request Council to approve formation of a separate West Midlands region.

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Getting down to international business in Miami ...

Vice President Trevor Hunter records some highlights of the LES USA and Canada Annual Meeting and LESI Delegates Meeting, at Miami Beach, Florida, and claims that it more than lived up to it’s billing as the '3-DAY IP MBA'!

About a thousand delegates, swelled in number to around 1,300 by accompanying persons, enjoyed some beautifully warm but pleasantly breezy Miami Beach weather.

They heard Judge Randall R. Radar of the US Court of Appeals for the Federal Circuit open the proceedings with his keynote speech on the subject of assessment of damages as a remedy for finding infringement of IP.

He acknowledged that members of the licensing profession were the great facilitators who made the entire system of IP protection and technology transfer work. Business and the courts depended on licensing professionals, he asserted, particularly to value technology - and he urged those present to be good judges!

In the plenary session on the second day Dr Jerry Hausman, Professor of Economics, Massachusetts Institute of Technology, drew attention to the IP value of Michael Jordan of Chicago Bulls fame. Michael is arguably the world’s greatest basketball player and ‘as one of the world’s great brands’ has been recently assessed by Fortune Magazine to have pumped US$10 billion into the economy.

Dr Hausman compared the book value with the market value of the top 20 US companies and concluded that 13 of the top 20 were high IP companies. He predicted that IP would be the moving force of the future world economy. IP accounted for the yawning gaps between market value and book value in the 1990s when Microsoft and Intel are kings compared with the 1950s emphasis on physical assets when General Motors was king.

Delegates had the opportunity to attend five out of a choice of nearly 70 workshops running concurrently in five sessions and to enjoy taking part in some well-constructed licensing negotiations. By purchasing audio recordings, they could catch up with workshops they had missed!

Accompanying persons were not neglected. Delegates and their partners enjoyed a wide range of tours and sports and social activities. These included a spectacular firework display at Penrod’s on the South Beach. Some 20 LES Britain and Ireland members and their partners enjoyed meeting up for drinks prior to the dinner dance on the Wednesday evening.

The Annual Meeting was followed by the LESI Delegates’ Meeting on the Friday and Saturday morning after dinner at the historic Bath Club the previous evening. LES Britain and Ireland was represented at the meeting by Fiona Nicolson, Chris Goodman, Barry Quest, Jeremy Brown and myself.

A proposal to make a number of amendments to the LESI Constitution and by-laws following an extensive review carried out by Heinz Goddar was frustrated by insufficient delegates to achieve the required two thirds majority. It was agreed to address the need for the appointment of proxies to avoid a repetition of the problem in the future.

Introduced by the outgoing President Rodney de Boos, the meeting admitted and welcomed members of the Arab Technology Transfer Society as a new LES member society, representing a number of Arab countries.   

LESI committees met in individual session and reported back to the full Delegate’s Meeting. The Industrial Sectors committee co-chaired by Dexter Brooks and James E. Malackowski planned to assess the feasibility of creating a new Aerospace/Transportation sector, following the successful post-conference add-on session in Miami. Rich DiCicco undertook to work with the Communications committee to further the LESI web page to establish sector-based information.

At the conclusion of the meeting, in-coming LESI President Platon Mandros made an LESI award to Rodney de Boos for his "masterful leadership and exceptional skills, patience and professionalism".

He thanked departing committee members for their work, including Renate Siebrasse who was completing her term of office as LESI Secretary, and paid a particular tribute to Sam Layton for his fine, long and dedicated service to the Society.

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Learning the ‘tricks of the trade’ in London

Representatives from five British universities and from such major organisations as Glaxo Welcome, British Aerospace Royal Ordnance, Hewlett Packard, Williams Worldwide Television and Zeneca Agrochemicals joined lawyers and practitioners at the Society’s highly successful advanced licensing course in London on 20 November.

"It was a very satisfying spread of licensing experience and ability," commented Fiona Nicolson, who chaired the event. "All seven speakers were clearly impressed and were kept on their toes, particularly during the very popular workshop sessions."

First speaker was John Emanuel, who has spent nearly 30 years finding and securing licensees and licensors in industries including chemicals, pharmaceuticals. plastics, mechanical and process engineering, software and even fence post manufacturing. He delighted his audience and fielded many questions with a discussion on the tricks of the trade in finding ‘not only the business partners you know you need but also those you didn’t know you needed’.

Using background papers, course organiser Michael Connor stressed the need for strategy and how the good use of this had made a success of Ray Dolby’s enterprise while lack of it had resulted in the failures of Xerox, Canon and Ricoh in the field of plain paper copiers.

In a revealing review of sections of the law, Michael Burnside brought attendees right up to date with the Competition Act and EC legislation while Donal O’Conor succeeded in stimulating sharp debate in making attendees step back from a Murphy-like situation - what can go wrong does go wrong - and consider the commercial realities of licensing disasters.

Most of those present quite rightly used the generous lunch period for profitable networking before an erudite but amusing discussion with Andrew Caldwell on realistic royalty rates. Richard Blackmore also commanded attention when he sought and obtained views on the licensing of a novel software controlled pump technology developed through a number of prototypes at a university teaching hospital and requiring collaboration between four inventors. Some of the reasons why this project was successful, ands how a genuine win-win licence strategy was achieved, were explored in the workshops that followed.

Before the plenary session, during which speakers were faced with a flow of questions, Henry Connor took the long view and dealt with the management of long-term agreements and, among other issues, the essential steps licensees and licensors should take to ensure that the agreements survive numerous changes in personnel.

The one-day course attracted much favourable comment, both on the day and in correspondence with the President and the organisers Michael Connor and Donal O’Conor. There will be more, but their nature and length are the subject of debate. If you favour a course just for lawyers... or confined to entrepreneurs... or a weekend discussion group in a Surrey mansion, write to News Exchange.

Quotes from course papers

In some countries, e.g. Japan, negotiations are a ritual. Never expect great concessions. Do not measure success by the issues agreed, but by those yet to be settled. Michael Connor

The most important legal matter in the event of an agreement falling apart is to get out of the agreement and carry on with your business. Litigation is only for large companies and fools. The important aspect of any licence agreement is the basic business proposition. Donal O’Connor

In an ideal situation, an independent expert will always prefer to determine a fair market value by reference to comparable market transactions. In practice, this is difficult enough when valuing assets such as real estate, especially in today’s climate, because it is rarely possible to find a transaction that is exactly comparable. However in valuing a brand name, for example, finding a comparable market transaction becomes almost impossible. Andrew Caldwell (on realistic royalty rates)

Long-term agreements require on-going attention to many matters that are generally outside the direct duties of licensing executives, but should be of concern to them in ensuring success of the agreements they negotiate. Henry Connor

In searching for licensors you will hopefully come across those you didn’t know you needed - and these can be the most important ones in your business. John Emanuel

Vertical restraints - almost a misnomer. Legislators should really refer to vertical agreements and horizontal agreements. We have to get used to Brussels jargon. Michael Burnside

All licences are perceived to be win-win at the time of signature. Only the passage of time will show if this is really the case. The focus is usually on the licence negotiation... but events preceding and following that negotiation can be determining factors. Richard Blackmore

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Point of View

Difficult Political Decision

In an unprecedented last minute move, LESI president Platon Mandros (USA and Canada) stepped in to cancel the annual international planning meeting in Israel in January. Because of the Iraqi ‘situation’, attendees would have had to meet in a location where they would be ‘apprehensive and uncomfortable’ he said in a personal letter sent just before Christmas.

Instead the meeting will take place in Paris - in a country resolutely opposed to the military action taken by USA and Britain.

Whilst the primary purpose of the meeting is to plan international activity for the coming year, it is usual to select a venue where the presence of international delegates will provide needed support for local activity. The small Israeli society, and the newly formed Arab society, which has organised a following seminar in Cairo, could be badly hit by the decision to change the venue.

Concern has been expressed about this decision. Having agreed to allow formation of societies in countries in which ‘uncomfortable’ situations are clearly a possibility, some are of the view that international delegates should be prepared to give their support to those countries when it is most needed.

Barry Quest, Manchester

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Attractions of early day licences

David Neil discusses option valuation, a topic he is to address at the Society’s Health committee meeting planned for April.

Following Merck’s lead in the early 90’s, many pharmaceutical companies are exploring the use of Black-Scholes option pricing techniques in the appraisal of R&D proposals, both at initiation and at stage gate reviews.

At the same time, there is increasing interest in acquiring licences from small, innovative bioscience firms for new molecules at an early stage in their development. One recent example is the licence under which Zeneca took over from AnorMED the further development and commercialisation of their anti-cancer agent AMD473, a third generation platinum compound which had only just started Phase 1 clinical trials.

Such deals have attractions for both sides. The licensors get early cash flow and are relieved of routine work that they may find difficult to resource, leaving them free to return to the innovation which is their forte. The licensees get the benefit of the free wheeling innovation which all too often withers on the vine under the cultural constraints of a large organisation and can deploy their massive resources to best effect in the more formalised tasks of late stage development, regulatory approval and commercialisation. They also pre-empt access by their competitors to the molecule in question.

Clearly, what is being acquired is an option, and that aspect of the deal will be susceptible to Black-Scholes analysis. However, the option is being acquired within the negotiation of value in exchange, where there is another view to be accommodated, and is being acquired in the context of a licence under which additional monies in the form of running royalties may subsequently be payable.

Add to that the special tax considerations applicable to intellectual property payments and it is clear that option pricing as applied to the equivalent stage of an in-house programme will not alone be enough to arrive at an equitable value.

Risk-adjusted DCF licence pricing models can handle the trade-off between up-front and running royalties, take account of anomalous tax treatments and reconcile the differing positions of licensor and licensee, while being open to the application of Monte Carlo and other techniques for projecting cash flows.

Their limitation in the context of early-day licences is that the classic DCF analysis on which they are based assumes a near-market situation. However, they can readily be adapted to generate values for all the parameters required for the application of Black-Scholes analysis to yield extended NPVs fully comparable with those obtained when appraising in-house R&D by such means.

The presentation will review briefly the methods available for licence valuation and provide a non-mathematical overview of option pricing as a means of appraising R&D proposals. It will then explore how ways are being developed to bring them together to support the valuation of early-day licences.

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Information technology - how changes may affect licensing

How will changes in the supply of information technology affect licensing and IP rights? Dennis Barr, commercial manager of the information systems division of Scottish Power, will be leading discussion on this at the LES evening in London on 18 March.

He writes that in many sectors of industry, IT spend is a significant proportion of total company expenditure and therefore attracts close scrutiny as to how these costs can be both managed and reduced.

This has been a fact of business life for several years and has led many companies down the route of outsourcing all or part of their IT departments. However, the advent of the internet and the opportunities offered by electronic commerce have forced a re-evaluation of the role, purpose and value of internal IT resources.

The value of the new and emerging technologies in providing competitive advantage is being recognised, but is still coupled with the drive to contain operating costs.

As a consequence many companies are seeking to retain IT strategy as a key internal business function, but are simultaneously exploring outsourcing or joint venture opportunities with specialist IT companies. These options are given greater emphasis by the shortage of skilled IT staff and the difficulty and costs associated with retaining a highly effective internal IT function.

By adopting this approach companies will in the future be faced with the challenge of protecting their IT strategy and associated competitive position whilst having their IT operations provided by a specialist supplier. This will pose increasingly complex relationships between customer and vendor, not least in how the legal licensing of software and the customer’s IP is protected.

The talk will highlight the changes in which companies will use IT in the next few years and the changing relationships between internal IT functions and IT suppliers. The potential impact on the licensing of software and IP rights will be the subject of open discussion and debate.

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Character licensing has become an industry worth more than $120 billion at retail around the world. But as the ever-increasing barrage of marketing, advertising, sales and promotion opportunities threaten to swamp consumers in the approach to the Millennium, what does the future hold for practitioners in this field? LES member Italo Cerullo of The Copyright Promotions Licensing Group (CPLG) has both the good news and the bad.

Classic licensed characters will hold their own - but don’t bet on the newcomers

In CPLG, one of the world’s leading licensing agencies, there is a strong belief that despite the proliferation of satellite and digital TV channels, new licensed entertainment characters are destined to suffer badly over the next few years. Barring such classic entertainment properties as Star Wars, Snoopy, Rupert Bear, the Mr Men, Disney and Warner characters, the future in not bright in the UK, America and elsewhere.

Children’s TV shows are being produced around the globe simply in order to fill vast areas of airtime generated by the dozens of satellite and digital channels. Retailers and manufacturers will not possibly be able to take licences on all the new characters appearing on the screen - they would not have enough shelf space! More importantly, they will not be prepared to take a punt on untried and untested licensed characters when ratings are being fragmented as young viewers increasingly channel graze.

There will always be exceptions. The Teletubbies are the latest licensing phenomenon to enjoy success. And few could have predicted the success of the zany, irreverent, cult adult animation show South Park, albeit aimed at the older audience. Yet these are isolated ‘hot properties’, and while these will always flourish and burn brightly for the short term, it is too early to say if they will achieve classic status.

At CLPG we feel that this is the right time to be seeking as much value as possible from the portfolio of classic rights the company holds – Star Wars, Snoopy, The Pink Panther, The Simpsons, the Mr Men, Rupert Bear and Dennis the Menace. This year will be the company’s 25th anniversary and for most of those years the company has specialised in the entertainment industry, representing as it still does many major Hollywood film studios and media companies and some of the most celebrated classic characters. These include Lucasfilm, Twentieth Century Fox, MGM, Sony and D.C. Thomson.

Over the last two years, CPLG has successfully diversified into sports licensing. The company now represents the rights to the Euro 2000 Football Championships, the Rugby Football Union, the 1999 Cricket World Cup, the England & Wales Cricket Board and the National Federation of Anglers.

We believe it is with these well-established companies and organisations that real value lies over the medium to long term. So, in the current climate and with more than a whiff of an economic downturn in the air, the best advice is - hang on to those classic characters and key sports events and make sure they are working hard for you and your licensors.

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In Brief

LES at the Commons

LES Britain and Ireland has a standing invitation to attend meetings of the Parliamentary and Scientific committee at the House of Commons, and is normally represented by Michael Connor and Henry Connor. Both of them were unable to attend the last meeting concerning the increasing resistance to antibiotics, so Trevor Hunter attended in their place.

He reports that the Lord Soulsby of Swaffham Prior, Dr Robin Bywater, Director of Scientific Affairs, Pfizer Animal Health, and Professor Richard Wise, Professor in Medical Microbiology, Birmingham City Hospital, made presentations.

From these it was clear that although antibiotics have saved countless lives there is a price to pay: introduction of each new antibiotic has been followed inexorably by resistance to it.

Publications received

Edited by Dennis Lock and now reaching 1296 pages in its fourth edition, The Gower Handbook of Management is a clear, authoritative, gimmick free and practical guide to best practice in management. Intellectual property rights are covered by Nicholas Manley and brand management by Jack Bureau. The price is £75.

Following the success of their earlier book, A Better Mousetrap, Peter Bissell and Graham Barker have launched a new work offering the essentials of success for inventors and innovators, The business of invention. Peter writes: "As the changed title implies, there is now much new detail about the main options for most inventors: licensing, business start-up and joint venture". The target market is the private inventor and small firm, and those who support and advise them. Contact Peter at Wordbase Publications, tel 01422 842401, fax 01422 844949.

On becoming European

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